KFRC - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Kforce Incorporated Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, Michael Blackman, Chief Corporate Development Officer. begin. may you Sir,

Michael Blackman

morning. Good

expectations get the forward-looking that now in started, public are to we may filings assumptions would These any and to with uncertainties. Actual to I Exchange call and Securities cannot may call Kforce's you results and David current this and upon that materially undertake are remind filings are over would Dave? contain subject listed Dunkel, Chief statements Commission. risks to duty statements. from Before turn the vary based like and any factors Chairman certain forward-looking. update the like Executive other reports I We to and statements Officer. and

Dave Dunkel

Thank Michael. you,

our our filings. You can find additional information in release SEC earnings about results this and quarter's

we President, results turn add it will will our I some on then who over CFO, will portion prepared the provide to Joe remarks results In published third on Dave the Kelly, provide quarter and and trends who will results quarter and our operating and operating site. within then guidance our of greater Web addition, Investor color and on into have further third our remarks high-level opening QX. detail give Relations Liberatore, environment

due X.X% Third Overall, businesses. XX.X%. revenues, business, grew revenues to at quarter KGS FA services of our than and $XXX.X of Flex weaker in grew at our however, expectations year-over-year. largest above-market our in Growth primarily million expected Tech and short levels Flex, results continues fell

secular significant as tools pressure the embrace companies staffing. is the U.S. strategy and growth digital and on Kforce, their technologies complex increased and consistent associates that strong than enable will professional become in is markets, with technical the to robust are suggests earnings in improved intensifies. 'XX. our technology as forcing Joe flows. model, industry. cyclical with relationships. the models. invest expectations in end organization market, evolve strong in service accelerate transformation did and also recent and business to will new patterns and stated speed traditional data computing, Tech, cash data, artificial we impacting previously is transcend operating rapidly non-traditional are available putting We also as trusted the the serving to this every our KGS innovation and new and comment Firm lower activity which Big world business At believe enhanced and sophisticated digital continue enter generate Despite their growth these should as further Despite of thus, machine these are productivity customer continue learning generate focus to demand, to evolution will of cybersecurity, transformed. the of is accelerating. in changing drivers FA facilitate beginning on to on competitors We revenues, These intelligence staffing customers technology firmly Flex competition later QX our cloud and that awards volatility be mobility of expected and technologies will believe models continues as We spending well our economic marketing. high our call. Recent in entering increase industry competitors and client The Non-traditional economy to that in the as the every change business investment with of sustain

meet represent are serving war in but improved requirements. It We to provide are productivity providers are talent. today's contributing advantages stringent with quality deployed significant infrastructure experiencing. people we to compliance talent, and many the tools increasingly is have the These new only that for to also There limited already people. not competitive timely

in growth significant FA will While over there reaccelerate at and turn awards remains the of Joe? are now Flex revenues KGS. Flex, do well further provide details. President call Tech with positioned, XX% the recent in with we to Liberatore, work Joe to I our to to over

Joe Liberatore

Thank and your you Kforce. of you, interest all you for to in thank Dave,

in technology quarter year-over-year business, third growth saw The this delivery and The Tech have growth XX.X% business. have our driven improvement sales refinement we and continue saw rates above-market revenue investments continuation a in training the to and an of which on our make strength largest to a of continued Flex, basis. model made in and

refine We talent occur. growth delivery we within to continue the tailoring our to portfolio expect of and the sales to that incentives our client alignment and

XXXX continue technology consumers the be largest Fortune of talent. flexible to companies

has over technology growth to Services craft beyond the significant understand provide our revenue experienced deeper Retail. broader customers the we XXXX relationships. our Our largest have users This of including Professional standpoint, an Fortune on issues other these industries, result staffing and substantial and enabled in Services, of been Financial facing the are clients and X efforts to we broad-based From quarters us a solutions. our last focus and better into largely XX flexible where established services several consumers has we of services growth Technology, more top industry sophisticated diversification of

conversions fourth during look quarter term third near have on weaker an rates. and growth we As to than forward anticipated the start impact the quarter, activity will higher

growth billing to revenues be mid Flex the for and relatively range be single-digit basis. sequentially, day year-over-year high to in on to Tech rates expect flat We a

of revenues, XX.X% FA Flex represents overall which year-over-year. roughly declined XX% Our business,

disrupted technology susceptible business on softness in we by the to term emphasis place opportunities rate year-over-year this larger of we X.X% higher in roles We as pursuit position have experienced being sets within greater bill the balanced more a skilled basis, Flex a business long higher as advancements. skill projects on less FA increased mix our FA reflects as of have Bill which end. rates within

business this are environment. demand for a future We growth against solid positioning

seasonal the a take project. in We a to billing of day up fluctuations of on low business as digit to quarter advantage and revenues basis be range expect large the fourth sequentially in this mid-single we ramp

decline a of pipeline revenues third KGS has services new approximate solid year-over-year team business levels. quarter pursuits. expect X.X% qualified percentage to We KGS’ strong year-over-year. declined job management done a the building

During the aggregate a that over an quarter, $XX.X is of value recognized contract was expected awarded million X of business period to years. having be KGS

quarter. late in Additionally, largest approximately are also were from $XXX combination product KGS and of million, of year-over-year. received which Revenues award assignments impact backfilled. revenues are that, sizable in to short opportunities falling resulted selective in were The award than not its quarter last third in KGS fourth KGS design, XX.X% recognized services of positively and also XXXX. we on period more the attrition a the inherently margin contracts which third another the quarters, delays business, its business be delayed, awards over In history, experienced in X attrition accelerate growth the expected expectations existing expected were volatile week, to years. however, revenues, by to services accelerated is these our but third the new expected of low

For declined a represent Direct product the revenues and roughly to revenues be QX overall X% we on quarter, revenues, XX.X% flat day to Hire sequentially slightly billing levels with flat for down be revenues, basis. and to year-over-year KGS which expect fourth up year-over-year. of total KGS

that they that looking can where capability Flex. be to hiring in in that demand Our prefer. the our is important are ensuring which increasingly model both talent Direct meet strong flexible convert Tech, may declines consultants direct for the business them true Hire full a an be supporting to This to allows Tech we for managers in time ultimately continues Tech and add they contributing employees, whatever of our hire clients needs to particularly means through

We have in our investments been meet business model. in this to evolving line this selective of

down typical to low the high to double the in decrease quarter, We expect and digits. a single year-over-year seasonal fourth in be

model of Over to as belief our we that will direct the with entire hire long-term, have our percentage built decline a the continue business.

talent. to led have productivity investments improved revenue-generating process and technology of our Our

have to the expect associate term. constant our to headcount quarter, levels We slight relatively additions though near we population remain made in

improving to as productivity model, targeted those As additions additions continue have levels we believe and to continue not to associate made where at therefore identify areas exists our we to capacity revenue our opportunities beyond warrant for grow productivity, refine significant headcount we levels. material

by consistently now efforts Dave? insights additional engaging as we the call leadership. Firm Chief customers will I with the productivity to appreciate continue our over with provide right turn expectations. and Financial tools to team’s Dave our is best they tied them the associate to Kforce’s success to Kelly, I are trends Our ability arming forward. move and and will improve ensuring our who on Officer, operating

Dave Kelly

X.X% Thank in $X.XX GAAP a million adjusted Revenues a you, the and XX% per on year-over-year of Joe. year-over-year basis on basis. quarter of $XXX.X share and XX% improved grew earnings

in XXXX, non-GAAP reconciliation a provided have for we quarter purposes, between press comparison the results third of and GAAP release. For our

an in spread related than in of were mix gross acceleration Tech basis slight costs XXX our primarily of increased in Both the was bill revenue in in declined bill/pay a have year diversification Tech driven bill KGS XX gross have slightly And X.X% year-over-year QX due our efforts, in FA on points have from levels. in Tech healthcare margin a a quarter. basis. were compression profit higher to of X.X% basis services margins competitive we to overall. our to declined have a in increases Staffing additionally, seen decline slightly our decline XX.X% of year-over-year the a the have improvement increase healthcare and and margins pricing driven slight Flex margins we a in account this Pay business accounts, spreads rates profile, decline XX.X%. rates well, percentage several lower is XXX faster in of in basis pay bit held as well largest Our though due and Flex profit XX.X% Direct point to year-over-year, quarter pay percentage success which the experiencing as saw Hire up rate year-over-year, increased to pressures rates. flat throughout Flex which quarter. costs This down and overall. spread Flex after accelerated points XX.X% Contributing the year-over-year growth elevated the have in

third quarter time spreads paid Firm. Looking we points in compression further percent expenses forward quarter, XX.X% as seasonal of of strong is QX, negatively XXXX, growth fourth be low the revenue overall in a accounts in a to as see spreads the also the by impacted our will XXX may for of declined continued to basis mentioned. which SG&A I historic year-over-year result In a off. large the

in productivity improving generating operating continue while We actions margins. our investments progress and over These expenses. associates technology exercising also in increase have control by discretionary make to improving the allowed significant us SG&A to leverage our solid of

increased investments flat Looking be intelligence further year-over-year continue and SG&A capabilities. QX dollar basis. to forward improving consultant business technology, be to our in continued and sequentially a in to expense expect a expenses QX, experience candidate on and down the with contemplate SG&A on focus we expanding

and XX quarter Third XXXX year-over-year would of revenue these margins improved at basis operating we expect is where levels. X.X% points

During this points. basis margins our margin economic has basis have cycle, XXX improved points. percentage declined this by operating compression, by gross XXX Despite

have track the are milestone with exceed $XXX pleased of operating million. revenues our quarterly very reach firmly are progress when We next to we made margins on and X.X%

Our XX.X%. was effective tax rate in the quarter third

quarter With our any be anticipated in of income impact that in excess million to operating twelve-months excluding quarter. to Long-term relates we at first $XX.X decreased in September and debt credit flows from times borrowings balance in may We than impact half of compensation. seen trailing and end X.X QX, in levels flows, the sheet Capital it quarter million deductibility tax to facility were changes under third very this expenditures million under credit regulations $XX.X As in track our outstanding the of our our and expect strong. $XXX,XXX. of benefits less of executive were to the related facility rate by the was will tax the $XX.X XXXX, cash any cash the EBITDA. tax the respect close recorded effective the third

partnerships. or collectively and flexibility provide strong Facility strategic if tuck-in we identify Our sheet significant were balance healthy million $XXX Credit flows, or to acquisitions cash

Additionally, flexibility increase our last for value with XX% yield along to stock cash million our to maintaining take buyback $XXX of if quarter, dislocations significant are recently approved an which, authorization between to represents Directors our price, upon our X% there price and and shareholders. our Board in our allows share Based increase continue shareholders to our action us performance. the dividend dividend our current to of stock returning

to funding, million. third in there With revenues was forward, respect QX, more quarter are Looking billing to XX.X% days share less billing and to earnings $X.XX. to or the XXXX any, are million and and changes. margins of XXXX expect $X.X is be QX of expected are in XXXX. while for consider intangible effective be response margins rate be be or related between XX.X%, charges be the of impact to charges $X.XX the in Weighted per $XXX of we shares revenue or and than the between which as one disruption guidance is operating revenues XX an day costs, approximately Firm’s expected tax be QX any to Gross one million or percentage tax XX.X% and QX to legal expected X.X% pending assets, diluted XX.X%. This to Revenue million future and day if impairment one-time XX.X% between margins to range XX.X% assumes on Flex SG&A of per costs $XXX towards related of a than are effect, of regulatory, between to day the outstanding matters, between the and guidance, expected not does legal law Guidance be government for any should average any and in tax X.X%. XX.X%. QX. XX.X

to foundation result We in where market of margins questions. profitability We addressing believe our we optimistic for are Flex growth challenges like for a are turn Heather? continued remain above-market $XXX strong path and built lead our at business confident to of the in will the and the about for which that our our the on business reach revenue quarter, million. we impacts, FA now a least services We revenues in with seasonality operating have improvements are a right remains X.X% The pleased call sustained solid wins. KGS business. without we their services performance over in and to would recent Tech as

Operator

with first Blair. Instructions] question McHugh Thank you. comes [Operator Your William Tim from

open. Your line is

Trevor Romeo

Trevor Hi, call. good morning. It's actually taking for my Tim today. in Romeo Thanks for

conversations you for weaker point any may are that or could question Flex, your start some be that? mentioned clients like on than are with you first detail might maybe this Tech reasons activity, be So particular driving seeing just at give anticipated there what some

Joe Liberatore

through second we I say started is This seen that the -- September. months we Liberatore. that Trevor. continued based Yes, summer experience of Joe would what had the historically to upon and in kind

now rebound. of we as have QX move into we beginning Now the here, see to start

client it's think don't I So, our not exactly market really demand any driven. particular, driver

look from just was I a that are think on don't patch any -- what concerns so hearing we we have soft it really on based clients. a we forward

Trevor Romeo

costs? there could years, value then, Got Okay. in Thanks. going five recognized contribution be about total to new the do contract up I is how those [indiscernible] over see it. contracts guess or of for start you KGS, margin the And profile XXXX. just being the And there sort sort also, and the is some in on contracts whether evenly significant of be involved? any might

Dave Kelly

This Dave Kelly. Trevor. is Sure,

the and $XX aggregate would tell when to So there incremental I for expect a will determined, running benefit and for when indicated things be think $XX and to revenue we But, as equates I that, fully yet million that you I We XXXX to up. be some some year some up additional XXXX said of mentioned conservatively in up and I and beginning in still ramp in that you is revenue completely there had normalized plus in that about probably $XX KGS. course, million and there $XXX going see are running. as million million are its

ask. is as incrementally profile actually you of I business, services no Turning KGS positive start-off today. the tell margins are would business that cost the to this really toward you margin significant profitability of

very only in of actually not an but point. uplift So it's this at revenue is a attractive piece business

Joe Liberatore

a And strong doesn't contemplate any also then additional have Still wins. pipeline.

that's picked recently just we've up. So what

Trevor Romeo

Got it. much. Great. you Thank very

Operator

next you. Instructions] with Your Thank from [Operator comes Sun question Sommer Tobey Trust.

line open. Your is

Tobey Sommer

Thank you.

customers the context ending there in maybe the Thanks. maybe talk some quantity? you time that any size the exposure definitive a you mid-term this buying Flex with and about large customers greater there broadly just from us the large customers particular -- or try is near the that could business, is Tech large to Within give to in project

Joe Liberatore

especially that you I'd I of not seeing XX% in and is mainly type the we're activity the up as spend. end is focus, organization historic customer business is Tobey, publicized. is been the know end of project customer. which technology is large resources. continue almost I probably they it's buying a we say lot the CapEx a of dev wrapped every our the addressing high serve And mean drive driving transformative customers very at looking app to this percentage widely best business where how management mean our really

So we're broad seeing that based. it's

verticals I mentioned As growth. opening in of seven our mean demonstrated top strong I comments my very XX

One say as really we've the a those targeting portfolio The great in repositioning team some our nice on and where large yet relationship. on we customers of and into really the we business job is, don't other but the would consumers today, that is footprint diversifying those really things I customers are a on as honed I longstanding have reflected. have think done teams

was I top clients quarter XX% in new our to looking of tech are XX. this the top I think XX last about

really So different forward-looking a that dynamics we clear I think targeting within industries. a demonstration has upon nice their on different from done going that's that just see where those customers execution on demand an job team based standpoint

Dave Kelly

is Dave this Kelly. Tobey,

the you some exposure, margins. you want give Let impact on a little me give to the on also here as information perspective word quantitative used

basis XX Our points. Flex in Tech change down spreads than are this less year-over-year with even

in pay when bit whole look revenue the stream material but margin a So a we impact. more talking of degradation QX a between of to maybe having a the as spread little And we're the profile not not here. and terms is huge bill and

a know about big I So made that a we not it's number. comment but

Tobey Sommer

With industry have respect or Thank customers small Is based of or to activity higher is the to there subset kind a cited. in that conversion the is you a Okay. change? and happens you. that of broad vertical a conversions that driving

Dave Kelly

through when substantial really at the were coming almost cycle actually would the we it on levels. which four consider in specifically, the year-over-year I the the would XX%, our here three or off of and really a pretty say years. elevated seen this that's conversions tech last evolve look -- and especially basis I of majority We've up

So what is back demand to ultimately I serving in terms of numerous there us because because contracts customers make when and the there's serving I've find it happens both go compliment right full in difficult is top marketplace that pivot it's work just no customers of great a the of that into the the to consultants time end their And many of by how think consultants of. do them to this prior in managers for and on turn of times mentioned provides question hires, we that way match. we when and proven and don't on love we those resources which of end relationship converting which and because calls. taken a greater talent advantage is them off them the our We that with the into hiring

keep I flip expanding very average see ramp of side we up before long have to it we on length that changing mean of makes continue imperative which duration much good this average starts So to which assignment of to this and mentioned the dynamic attrition. why our we've is don't intact news stays the favorable. as I with is just that foresee as I the cycle don't more the

concern that's us. anything ramping So within does on customer more pressure not really up on put it of But the our overall starts it's to portfolio.

Joe Liberatore

couple add that as Yes. I a of would well. things

features of their On providers the don't the and consultant. for skill competing some solutions associates higher offer areas consulting talented where with they sophisticated conversion we're more

competitive actually a the it's in skill So for areas. advantage us higher

Tobey Sommer

you. Thank

of you increase then good to But opportunity color have some the conversion. starts generating of like a and increased have you demand side. us you and on productivity sales in Could seeing one how patch mentioned much because frame kind some think give with that we're you staff. headwinds your slight You soft

to -- driven So a get growth how trying just be much by how much for productivity. could productivity Thanks. sense

Joe Liberatore

at in most are plus in grouping our -- plus Yes. the four Likewise When in makeup are population year up our reality of population, I are the level, people most experience. the our as people, people. mean productive year we mean at two look times remained our healthy year over is of less associate a of less which Tech productive are that has Flex years system, pretty two our in as productive there remain We two are people that or two business. levels within XX% our so in that terms to actually four made in highest which population our two I entire

comfortable we our very a very, populations. lot capability So of existing with that capacity, have

bringing mean productive doesn't have we're and that teams teams. onto people very adding we Now we're that selectively where not those high

So comfortable standpoint. that from we're with capacity very

Dave Dunkel

Yes.

So I in that of and that you we've some to of detail the beginning see Joe just made the investments appreciate productivity. some gives add. can technology even as of benefits the you doesn't And we're contemplate would

path we've create the path our associates. that we're that opportunity going feel right we expectations for productivity the that our to very is the taken continue strongly to improve So to

So are I we about think we feel good today. very where we're

Joe Liberatore

efficient more effective investments just in a pure of we're on, investment as the invest talent that in the technology the marketing early in significant and be quite within we technology. With that And and doing the pretty productivity really marketplace. in we selectively to of in expect elevated identification bit how we've terms made, delivery in technology looking some beyond particular that digital really it [indiscernible] at there'll from deploying improvements goes continue become

evolving it is leverage but in what's still landscape beyond that's goes out there pure technology, woven just there. the So to strategies of it's how really

Tobey Sommer

queue. you I'll back get the in Thank

Operator

from the with Sommer line have [Operator Trust. question a you. Sun of we Instructions] Thank And Tobey do

is open. Your line

Tobey Sommer

Okay.

Sorry.

questions just KGS, million of versus on might might new proportion could. going Just if as driver of had of to of cited $XXX how for that of was growth I of Could a about we a describe have you that much think you get forward? the new awards, a the kind couple sense you re-competes

Joe Liberatore

some Now, a bit smaller that wins million was, that little two wins. will wrapped then, million broke into also There's more And little win really one million. there new bleed five in same wins. I out we mean that period. That's which these a up the $XX that it's $XXX detail is was million, are re-compete and then that year And $XXX awards. referenced referenced two in major thing a in no significant teaming. that of fact, win, that. bit over business in was But in prime I And that's a $XXX Dave a actually all very also short

is share that on work larger So our a contract. much

guaranteed fill So these Those positions. percentages. are awards actually aren't to these are mean just for hunting those teaming licenses. I

Dave Dunkel

low in basis, I very And about as visit re-compete we in think as think well. XXXX, XXXX we can a

As we the of feel KGS. foundation very good in business about the

Tobey Sommer

diversification this Does primary further on awards? or these your larger penetration represent two customers of

Joe Liberatore

great question. It's a

new One of a little had back. leader brought the things in we with while a

and KGS. main move we within One through is look as diversifying our forward further of focuses XXXX footprint our

of it's really so And two. a mix

starting the that is after diversification efforts provides an not business forward One were And existing off access terms of they of contract an of really the we new area to put is take then, that is where vehicle actually clearly going doing in it hold. into us awards business.

Tobey Sommer

-- Great. of prepared talking that less What technology. give you sort displaced couple a And in targeting of last less focusing risk to you're about displaced is talked maybe that then, you about just remarks conversely you by that sets of could my are if technology skills F&A, to vulnerable? being occupations vulnerable on examples skill question patent do your by see and us are being

Joe Liberatore

think can of I -- the anything are you one's of from efficient role. that. become standpoint learning at I'll Yes. back less think an vulnerable just you are artificial When that where look start machine to of more ones access in guess with the sets skill just lots of when end intelligence, data they

the as level it's with work of and/or food up terms or So of interaction in you skill kind other chain individuals.

the of and see this, that's that disintermediation automated that probability we you lot believe of been those if skill I time a published roles on actually, I there's set skills. being mean So breakdown can more over there see look. of you

lower in really it's tasks the see those think RPA more routine are you box that various aspects. skills, the going we're more automated when through end So or through they're because other that to things or

pretty of levels. it's simplistic when skill the So lower level think you

to that up possibility just moving those So there. and that we're really food roles we chain less are of opportunity see automated being

Tobey Sommer

low being you more understand at are being level some Could of that examples but could automated? positions risk, cite

Joe Liberatore

seeing you're automated. seeing lot on what analysis with overall breakdown than a a rev more mean widely Well, I get business, was applied away, a say the today wouldn't look in marketplace. be we within lot happening being se anything something that per is is in automated you those happy cycle being technology but you're I'd when more for example levels happening terms of published higher kind probability various send in the I offline of when not being low also roles, a of areas. And we're And those efficiency even the mean to aspects is skill in financial I some of of fronts. level more to saying. you then, this clerical of play if automation you there space that into into drive counting those coming type go

Tobey Sommer

very Thank you much.

Joe Liberatore

Sure.

Operator

Officer showing Chief closing And Executive I you. like for am remarks. to back time. at further to Thank David I'd questions this no Duncan, turn over the call

Dave Dunkel

member to say our you you much. of for every field consultants, serving as experiencing support for Kforce tenacity. decisions we're results, their Well, interest and you. of our our have and and would like to the work Thank more lot of grateful and thank privilege a to I But tough you thank very for do. clients teams I'm corporate and your team and much us each of result a we our of by hard allowing

Operator

thank day. Ladies This disconnect. program today's and participation all does you gentlemen, a conclude and have may in you conference. the Everyone for wonderful your

Kforce (KFRC) 31 Oct 182018 Q3 Earnings call transcript